When we look at the number of transactions, we see a significant decrease in Romania, but this is expected given what is happening in many other countries. In the EU, real estate prices are already falling, which raises new expectations. Why buy now? Why go into debt now? Perhaps in a year, if this tendency to lower prices continues, you will be able to buy cheaper, said the future head of the Financial Stability Office of the BNR, Florian Nyagu.

Central banks are talking about slowing down lending to the population, but this is not surprising for them. “This is an expected thing. Moreover, several colleagues recommended the population to be somewhat careful in their decisions to take a loan, because there are many uncertainties that are manifested,” Nyagu also said.

The National Bank has been making these announcements for more than a year amid uncertainty that could lead to higher interest rates and, therefore, the rates you pay the bank each month.

“We are also looking at the connections between the construction market or the real estate market and the banking sector. And, historically speaking, most real estate transactions are not done with bank money. For some time, we have noticed another thing in the Romanian banking market, that is, most transactions are no longer for the first house. About 52% of the number of transactions concern secondary housing – either a vacation home or an apartment that can be rented out,” says Florian Nyagu.

The cost of transactions on the Romanian real estate market

The value of transactions on the commercial real estate market (EUR 1.23 billion) is significantly lower than in Poland (EUR 5.7 billion) and corresponds to the development of the markets of the Czech Republic (EUR 1.5 billion) or Hungary (EUR 1 billion), the Report on Financial stability of the 2023 edition.

Activity in the residential real estate market has slowed since the previous report, but with a less pronounced decline compared to mortgage lending.

The number of individual real estate transactions fell by 12% nationally between April 2022 and March 2023 compared to the same period last year, while the number of mortgages fell by 20%. The share of mortgage loans in total real estate transactions decreased from 39% in the period April 2021-March 2022 to 32% in the period April 2022-March 2023 and is about 20 percentage points below the maximum recorded during 2020.

According to data published by the National Bank, demand was higher in the Bucharest-Ilfov area, where the number of transactions was unchanged, while the rest of the country saw a decrease of 16%. However, in the first quarter of 2023, there is a sharper reduction in trade activity compared to the same period last year both in the capital region (-24%) and in the rest of the country (-31%).

Residential construction output slowed, with the level increasing by 1% in the April 2022-March 2023 period compared to the same period a year earlier, compared to a 30% advance recorded in the April 2021-March 2022 period.

The useful area according to housing construction permits decreased by almost 10%

Also, the usable area associated with housing construction permits issued for the period from April 2022 to March 2023 decreased by 8%, BNR officials say

The dynamics recorded during 2022 were relatively stable, in contrast to the Eurozone, the Czech Republic and Poland, where corrections in the last quarter of 2022 were more pronounced. A notable difference is Hungary, where the value of authorizations increased during 2022, despite high interest rates.

Pressure on housing costs remains, but the pace of growth has moderated slightly (+17% in the period from April 2022 to March 2023 compared to a peak of 20% recorded during 2022), according to the BNR. The expectations of construction companies improved slightly, with more than 40% of companies expecting an increase in prices.

Residential property prices increased by 6.8% in the 4th quarter of 2022 compared to the 4th quarter of 2021, a slight slowdown compared to the previous year (-0.2 percentage points), data from the Central Bank shows

At the Eurozone level, property prices started to slow down from mid-2022, with the start of the tightening cycle of monetary policy.

Average time required to purchase an apartment

It can be seen that countries with higher levels of debt relative to household income recorded stronger price declines due to the higher impact of interest rates on the solvency of households (eg Sweden or Denmark).

As of March 2023, the average time required to purchase a standard apartment in the country was 7.4 years based on the price-to-income ratio.

The indicator decreased by 6 months compared to the end of 2022 due to the slowdown in the price of residential real estate compared to wage income. The level of the price-to-income ratio indicator is close to the average of the last 8 years (7.9 years), which indicates a correlated evolution of household incomes with real estate prices, and is significantly below the level recorded before the financial crisis (about 20 years).

On the other hand, the affordability index significantly worsened compared to the previous year due to higher interest rates on new loans, falling from 102% to 76%.